The list of big mining companies writing down the value of assets and projects continued to grow overnight. Anglo American and Peabody Energy revealed almost $US5 billion in cuts, some of which apply in Australia.
The cuts takes the total of asset value reductions announced in the past year to close to $US50 billion as mining companies, especially the world’s largest, finally bring to book the costs of their headlong rush to buy and develop projects in gold, coal, iron ore, LNG and US gas and oil.
And there’s more cuts likely as a string of industry majors prepare to report their 2012 full year, or December half profits, in the next month. Write-downs in the past month or two already top $US27 billion.
Led by Rio Tinto and BHP Billiton, major miners around the world are slashing the value of their assets and stinging shareholders with the cost of their wasteful spending. In the cases of several major miners (think Anglo American and Rio Tinto), those write-downs are seeing CEOs and others leave.
Rio leads the way globally with over $US23 billion of asset write-downs in the past year, including the management-changing $US14 billion chop earlier this month. BHP has written off around $US3.3 billion on its US shale oil investment and could reveal billions more in write-downs against its nickel business. That could come today when it reports its interim production figures, or when when it reports its interim profits next month.
Overnight Tuesday, Anglo American revealed it would be taking a $US4 billion write-down on its Minas-Rio iron ore project in Brazil after delays and cost overruns forced the mining group to increase spending on the project to near $US9 billion. That was after spending aground $US5 billion on acquiring control of the project several years ago (meaning total investment will be around $US14 billion). The blundering over this project helped drive Anglo CEO Cynthia Carroll from her job late last year.
Also overnight, Peabody Energy, a major US coal exporter, wrote down the value of its Australian operations (mostly Macarthur Coal, which was taken over in late 2011) by $US884 million. That saw the company incur a loss for the three months to December. But Peabody, which has been a critic of the Australian government’s mining and carbon taxes, said the write-downs would not change its expansion in Australia and that it would continue to boost investment here over the US.
Just last week, Cliffs Natural Resource of the US (which has significant operations in Australia) revealed write-downs totalling $US2 billion, including $US1 billion on the purchase of a Canadian iron ore company and the development of a mine, plus more than half a billion dollars on another iron ore project in Brazil.
In late December, Vale, the world’s major iron ore miner, increased its previously announced write-downs to $US4.65 billion with $US4.2 billion of cuts to the value of its nickel and aluminium businesses.
Early in 2012, Rio wrote $US8.9 billion off its aluminium assets. Newmont Mining, the big gold miner, cut the value of one of its mines by $US1.61 billion. And Kinross Mines, another big Canadian gold miner, cut the value of its gold mining assets in Mauritania by nearly $US2.5 billion at the same time.
Along following BHP’s write-downs on its US shale gas assets, Total of France, BG of Britain and Encana of the US announced write-downs of nearly $US4 billion on their US shale assets last October.
And news late last week should be a warning signal for investors in Rio Tinto as it invests $US12 billion into bringing the Oyu Tolgoi copper and gold mine — to be the world’s biggest copper mine — into production later this year in Mongolia’s South Gobi desert. But Reuters reports a huge coal mine in Mongolia, supposed to be the biggest in the world and planned to be the single biggest supplier to China, has fallen on hard times.
Ah, restive governments have been a problem for Rio Tinto, whether it’s in Guinea, where the company was pushing to develop huge iron ore deposits (now delayed for years by government demand and escalating costs), Mozambique (the coal problems that saw the company write down 75% of the $US4 billion spent there), or now in Mongolia where the plans for Oyu Tolgoi have not run as smoothly as Rio had hoped.
Rio, along with other major miners, has run out of bogey countries and greener pastures and has now been forced to face reality and start accounting for its wasteful spending and investment.
Blimey, a stable government, rule of law and a meagre carbon tax does look inviting again, after all those terrible ‘sovereign risk’ assessments seem to be awry.
Wasn’t it just the other day that either Glenn Dyer or one of his colleagues reminded us that takeovers in the main are value destroying propositions.
Of course they are, unless you are selling into a hot market, in which case you got out at just the right time.
I am constantly intrigued at the way that Boards and management, and often analysts, view being taken over as a failure. From my perspective it appears to be a huge win.
But then you would have to be looking at these things with a rational eye rather than the purely egotistical mentality.